Econ Exam 1 - Questions
As oil prices increase, producers divert sugar cane from sugar production to ethanol production.
.How are oil prices and sugar prices related? Governments set the price of sugar (per ton) to equal 45% the price of a barrel of oil. Governments set the price of sugar (per ton) to equal 1.2 times the price of a barrel of oil. Oil prices and sugar prices are not related. As oil prices increase, producers divert sugar cane from sugar production to ethanol production.
surplus.
A binding price floor leads to a(n) shortage. surplus. equilibrium quantity. quantity of zero units.
0.25
If the price of aluminum increases 4 percent, and the quantity supplied increases by 1 percent, what is the price elasticity of supply? -4.0 3.0 4.0 0.25
increases; up and to the left
A farmer can grow soy or sorghum. If the price of soy increases, the opportunity cost of growing sorghum ______, shifting the supply curve of sorghum ______. decreases; down and to the right decreases; up and to the left increases; down and to the right increases; up and to the left
a contract to buy or sell commodities at some point in the future at a predetermined price.
A futures contract is a contract to rent a resource for a specified period with the option of buying it at the end of the lease. an investment security whose value depends on the prices of several other securities. the rate at which one currency trades for another currency. a contract to buy or sell commodities at some point in the future at a predetermined price.
economic non-planning.
A market is a form of regional economic planning. economic non-planning. centralized economic planning. decentralized economic planning.
is a maximum price allowed by law.
A price ceiling is a minimum price allowed by law. has an effect only when it is set above the market price. is a maximum price allowed by law. has little effect on market activity.
all combinations of goods that a country can produce given its productivity and supply of inputs.
A production possibilities frontier shows: the supply and demand for a good in a country. the uninhabited territory of a country that is full of new possibilities. the goods that a country will be able to produce in the future if it continues to grow. all combinations of goods that a country can produce given its productivity and supply of inputs.
present; present
A spot market allows for the exchange of commodities in the ______ at prices that are settled upon in the ______. past; present present; present present; future future; present
a tax on imports.
A tariff is a restriction on the quantity of goods that can be imported. a tax on imports. the restriction of trade through regulations on domestic producers. equal to exports minus imports.
supply; fall; quantity demanded to increase
A technological innovation in the production of golf balls increases ______ causing the price to ______ and the ______. supply; fall; demand to increase supply; rise; demand to decrease supply; fall; quantity demanded to increase quantity supplied; fall; quantity demanded to increase
a restriction on the quantity of goods that can be imported.
A trade quota is the restriction of trade through regulations on domestic producers. a restriction on the quantity of goods that can be imported. a tax on imports. a tax on exports.
increase the demand for labor, increase the wages received by workers, and lower the wages paid by firms.
A wage subsidy would decrease the supply of labor, driving wages up and employment down. increase the demand for labor, increase the wages received by workers, and lower the wages paid by firms. decrease employment by raising the wages paid by firms. decrease the demand for labor, lowering wages.
Pigouvian tax
A(n) ______ is a tax on a good with external costs. specific tax Orwellian tax ad valorem tax Pigouvian tax
good with fewer inputs than others.
Absolute advantage is the ability to produce a: variety of goods. good at a lower opportunity cost than others. good with fewer inputs than others. good when demand is high.
People work for the benefit of others because it benefits them to do so
Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." He meant that: high-interest payments mean that no one has to work anymore. most of us no longer get our dinner directly from the butcher, the brewer, and the baker. butchers, brewers, and bakers are not productive members of society. people work for the benefit of others because it benefits them to do so.
supply increases and price decreases
Although large parts of beef cattle become meat products, other parts become leather jackets. As the demand for beef rises, what happens in the market for leather jackets? supply decreases and price increases demand and price decrease demand and price increase supply increases and price decreases
social costs equals social benefits.
An efficient equilibrium occurs when private costs equals social benefits. social costs equals private benefits. private costs equals private benefits. social costs equals social benefits.
the high-skilled worker
An employer has work that can be done in the same time by one high-skilled worker paid $50 an hour or by eight low-skilled workers paid $5 an hour each and the minimum wage is $7.25 an hour. In this scenario, who benefits from the minimum wage, the high-skilled worker, or the low-skilled workers? (HINT: Who would you hire for the job?) the high-skilled worker the low-skilled workers both benefit equally It is impossible to say who benefits more.
Andy, because he is the less elastic factor
Andy and Annie are in a happy relationship. Annie has many substitutes for Andy, but Andy has few substitutes for Annie. Suppose that one of them has to move two hours away for work. Which one of them will do the majority of the driving if they decide to continue their relationship on a long-distance basis? Andy, because he is the more elastic factor Annie, because she is the less elastic factor Annie, because she is the more elastic factor Andy, because he is the less elastic factor
The supply has increased, shifting down and to the right.
Anonymity on the Internet has lowered the cost of rudely confronting people. What has happened to the supply of rude confrontations? The supply has decreased, shifting up and to the left. The supply has increased, shifting up and to the left. The supply has decreased, shifting down and to the right. The supply has increased, shifting down and to the right.
decrease.
As GDP per capita increases, child labor tends to increase. change unpredictably. decrease. remain the same.
increases; increases
As trade becomes more widespread, specialization ______, which in turn ______ productivity. increases; increases decreases; decreases decreases; increases increases; decreases
the domestic country better off at the expense of foreign countries.
Strategic trade protectionism makes foreign countries better off at the expense of the domestic country. all countries better off. the domestic country better off at the expense of foreign countries. no one better off.
Cigarette sellers will increase the supply of cigarettes to New Jersey and decrease the supply of cigarettes to South Carolina.
Assume that cigarettes sell for $7 per pack in New Jersey and $3 per pack in South Carolina, and New Jersey taxes cigarettes at $3.00 per pack and South Carolina taxes cigarettes at $0.10 per pack. How might cigarette sellers respond to the after-tax price differential between the two states? Cigarette sellers will decrease the supply of cigarettes to New Jersey and increase the supply of cigarettes to South Carolina. Cigarette sellers will increase the supply of cigarettes to New Jersey and decrease the supply of cigarettes to South Carolina. Cigarette sellers will increase the supply of cigarettes to both New Jersey and South Carolina. Cigarette sellers will decrease the supply of cigarettes to both New Jersey and South Carolina.
are willing to pay for a good minus what they actually pay for it.
Consumer surplus is the amount that consumers: are willing to pay for a good plus the amount that they actually pay for it. actually pay for a good. are willing to pay for a good minus what they actually pay for it. are willing to pay for a good.
Maria has an absolute advantage in baking both cookies and bread.
Both Maria and Jorge bake cookies and bread, but Maria spends less time baking each batch of cookies and each loaf of bread than Jorge does. Which of the following is TRUE? Maria has an absolute advantage in baking both cookies and bread. Jorge has an absolute advantage in baking both cookies and bread. Jorge has a comparative advantage in baking both cookies and bread. Maria has a comparative advantage in baking both cookies and bread.
Brazil has both a comparative advantage and an absolute advantage in sugar cane production.
Brazil can produce one unit of sugar cane for one unit of labor and one iPod for eight units of labor, and China can produce one unit of sugar cane for two units of labor and one iPod for four units of labor. Which of the following is TRUE? Brazil has both a comparative advantage and an absolute advantage in sugar cane production. Brazil has a comparative advantage in sugar cane production and an absolute advantage in iPod production. Both countries have a comparative in sugar cane production. China has an absolute advantage in production of both goods.
buyers, as long as demand is less elastic than supply
Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline? sellers, as long as supply is more elastic than demand it depends on the tax rate at the time the gasoline is sold buyers, as long as demand is less elastic than supply no one; the tax burden will be borne equally by both buyers and sellers Score: 1 of 1
False
Consumer surplus is a gain from exchange, but producer surplus is a loss from exchange. False True
The price of milk rose as the supply of milk decreased.
Dairy farmers use sawdust for milk cow bedding. What happened to the price of milk because of the housing slowdown in 2007? The price of milk fell as the demand for milk decreased. The price of milk rose as the demand for milk rose. The price of milk fell as the supply of milk increased. The price of milk rose as the supply of milk decreased.
consumer and/or producer surplus decrease without the surplus going to anyone.
Deadweight loss occurs when the gains from trade are lowered due to shifts in the supply or demand curve. consumer surplus transforms into producer surplus. consumer and/or producer surplus decrease without the surplus going to anyone. there is a shortage of a good or service.
Scarcity raised the price of natural rubber, creating the incentive to invent a substitute.
During World War II, natural rubber (from rubber trees) became incredibly scarce. Some even feared its complete exhaustion. The development of synthetic rubber staved off this doomsday scenario. Explain why, just when the Allies needed it most, this turn in good fortune was likely not a coincidence? The opportunity cost of planting more rubber trees was high. They lacked the incentive to create higher-producing natural rubber trees. Natural rubber went out of fashion because of the superior quality of synthetic rubber. Scarcity raised the price of natural rubber, creating the incentive to invent a substitute.
"good institutions can eliminate economic trade-offs."
Each of the following ideas is central to economics, EXCEPT: "prices rise when the government prints too much money." "good institutions can eliminate economic trade-offs." "people react to incentives." "specialization and trade benefit everyone."
The opportunity cost of going to graduate school is low when jobs are hard to find
Fluctuations in graduate school enrollment correlate positively with fluctuations in unemployment. What is the most likely reason why? Even if you have a job, the salary will be low, so going to graduate school is worth the effort. The opportunity cost of going to graduate school is low when jobs are hard to find. When jobs are easy to find, there are strong incentives to go to grad school. When jobs are difficult to find, the opportunity cost of going to grad school is high
an increase in demand.
For a normal good, higher income results in: a decrease in demand. a decrease in the quantity demanded. an increase in demand. an increase in the quantity demanded.
the supply of the types of guns exchanged is highly elastic.
Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because the programs tend to have a large impact on the price of guns on the street. the supply of the types of guns exchanged is highly elastic. the supply of the types of guns exchanged is not very elastic. the programs simply end up decreasing the elasticity of supply.
low and the product will be overproduced.
If the price of a good does not take into account all of the relevant costs of its production, then the price of that good is too low and the product will be underproduced. low and the product will be overproduced. high and the product will be overproduced. high and the product will be underproduced.
tax revenues will be less than the amount of the lost consumer and producer surplus.
If a $2 tax on cigarettes decreases both consumer and producer surplus, tax revenues will be less than the amount of the lost consumer and producer surplus. there will be no deadweight loss. tax revenues will exactly equal the amount of the lost consumer and producer surplus. tax revenues will be more than the amount of the lost consumer and producer surplus.
taxing sardine tins at a rate of $1 per tin.
If a tin of sardines creates a noxious odor for non-sardine-eaters equivalent to $1 per tin, the government could correct the odorous externality and achieve an efficient outcome by banning sardines. taxing sardine tins at a rate of $1 per tin. capping total sardine consumption at 1000 tins per day. subsidizing sardines tins at a rate of $1 per tin.
The commodity in question has a perfectly elastic supply curve.
If consumers pay 100 percent of a commodity tax, what could one conclude? Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side. The commodity in question has a perfectly elastic supply curve. Suppliers have more effective lobbying in Washington than consumers. The commodity in question has a perfectly elastic demand curve.
lower
If demand decreases, ceteris paribus, market price will be ______ at the new equilibrium point. the same higher lower either higher or lower
Demand will decrease, quantity supplied will decrease, and price will decrease.
If hipsters decide that Pabst Blue Ribbon has become cliché and they seek out a more iconic beverage, what will happen in the market for PBR? Demand will decrease, quantity supplied will decrease, and price will decrease. Demand will decrease, quantity supplied will increase, and price will decrease. Supply will decrease, quantity demanded will decrease, and price will decrease. Demand will decrease, quantity demanded will decrease, and price will increase.
too little of the good
If market incentives to produce are too weak, the market will end up producing: zero output. a quantity equal to the efficient outcome, as any incentive will result in economic efficiency. too little of the good. too much of the good.
equilibrium price will decrease but equilibrium quantity will increase.
If market supply increases: equilibrium price and quantity will both decrease. equilibrium price will increase but equilibrium quantity will decrease. equilibrium price and quantity will both increase. equilibrium price will decrease but equilibrium quantity will increase.
It rises, because each producer is getting more surplus per good sold.
If prices rise, what happens to producer surplus (all other things being equal)? It stays the same, because the forces increasing the surplus counteract the forces reducing it. It falls, because it encourages competition, which reduces profits. It falls, because fewer people buy goods. It rises, because each producer is getting more surplus per good sold.
binding price floor.
If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a nonbinding price ceiling . binding price floor. nonbinding price floor. binding price ceiling.
place a tax or put a limit on the exports of U.S. fertilizer.
If the U.S. government wanted to use strategic trade protectionism for U.S.-produced fertilizer it would place a tax or put a limit on the exports of U.S. fertilizer. place high taxes on foreign-made fertilizer. place a trade quota on foreign-made fertilizer. subsidize U.S. producers of fertilizer.
elastic demand.
If the absolute value of the price elasticity of demand for a good is 1.5, the good has a(n) inelastic demand. elastic demand. unit elastic demand. unit inelastic demand.
revenues decrease when the price goes up.
If the demand for a good is elastic, then revenues decrease regardless of the direction of the price change. revenues decrease when the price goes up. any change in price is matched by an equal and opposite percentage change in quantity, so revenues stay the same. revenues increase when the price goes up.
substitutes for each other
If the demand for good A increases when the price of good B increases, then good A and good B are: not related . substitutes for each other. complements to each other. both inferior goods.
try to lower the price of heroin.
If the demand for heroin is inelastic and heroin users get the money to pay for heroin by committing crimes, policymakers who want to reduce crime should tax heroin. try to lower the price of heroin. try to raise the price of heroin. make it harder to find heroin.
price of iPads will fall.
If the market for iPads experiences a surplus, then the: demand for iPads will rise. supply of iPads will fall. price of iPads will rise. price of iPads will fall.
import cotton.
If the world price of cotton is less than the price that would occur domestically without trade, then a country will export cotton. decrease its demand for cotton, and increase its demand for cotton substitutes. increase its demand for cotton, and decrease its demand for cotton substitutes. import cotton.
hold an auction
If there are 100 tickets to a concert and 200 fans that would like to go to the concert, each placing a slightly different value on the tickets, is it more efficient to hold an auction for the tickets or to hold a random drawing for the tickets? hold a random drawing hold an auction Both are equally efficient. It is impossible to say which is more efficient.
surplus.
Imagine a free market in equilibrium. After a sudden decrease in demand (but before the price can adjust), the market experiences a: new equilibrium. no change. surplus. shortage.
is less than $10.
Imagine a free market in which at a price of $10 quantity supplied is 50 units and quantity demanded is 40 units. Equilibrium price in this market: is less than $10. is equal to $10. differs from $10 in an indeterminate direction. is greater than $10.
elastic; there were more substitutes for trash collection
In 2005, Ireland began taxing residents on how much garbage they threw away in an effort to promote recycling. In response, residents began burning trash (which is environmentally more harmful and resulted in an increase in burn victims as people accidentally set themselves on fire). This story suggests that the elasticity of demand for trash collection was more ______ than lawmakers believed because ______ than previously thought. inelastic; the tax took up a smaller part of residents' budget elastic; there were more substitutes for trash collection elastic; the tax took up a larger part of residents' budget inelastic; there were fewer substitutes for trash collection
Supply decreased, causing the price to rise.
In 2011, revolutions and uprisings spread across North Africa and the Middle East, where a lot of oil is pumped. How did this affect the oil market? Supply increased, causing the price to rise. Supply increased, causing the price to fall. Supply decreased, causing the price to rise. Supply decreased, causing the price to fall.
Nothing unusual would happen.
In Ancient Egypt, the "Bronze Law" set maximum prices for wages, preventing them from rising above what rulers perceived as the minimum needed to survive. If this was 10¢ a day for a porter (someone who carries things short distances) and the market wage was 8¢ a day, which of the following would be a plausible consequence of this law? Porters would transport items they normally would not. Nothing unusual would happen. Porters would travel less quickly than they otherwise would. Unemployment for porters would decrease.
Searching for food in one direction means an ant cannot search in another direction.
In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs? Searching for food in one direction means an ant cannot search in another direction. Because an ant starves if it does not find food, it has a strong incentive to search. An ant suffers a large initial cost to find food. Ants face increasing marginal costs while searching for food in one direction as they ge
The deadweight loss of the tax will be higher in Northern Virginia.
In Virginia, the state taxes automobiles. In Northern Virginia, there is ample public transportation, and many neighborhoods are very walkable. In the rest of the state, there is less public transportation, and neighborhoods are more spread out. Other things equal, which of the following is likely to be an effect of the car tax? The car tax will raise relatively more money in Northern Virginia. The deadweight loss of the tax will be higher in the rest of the state. The deadweight loss will be the same throughout the state. The deadweight loss of the tax will be higher in Northern Virginia.
Are motivated by self-interest
In his book, The Wealth of Nations, Adam Smith claimed that individuals: are motivated by self-interest. always act in an altruistic way. are not concerned with resources. always consider the effect of their actions on others.
The opportunity cost of teaching an introductory course is higher for full professors than for graduate students.
In many universities, graduate students are employed to teach introductory undergraduate courses, even though the full professors at these universities have more experience and could potentially teach these courses better. Which of the following best explains why universities choose to hire graduate students instead of full professors to teach their introductory courses? The opportunity cost of teaching an introductory course is higher for graduate students than for full professors. Graduate students are cheaper. Introductory classes are the best place for graduate students to build their teaching skills. The opportunity cost of teaching an introductory course is higher for full professors than for graduate students.
placing a large dome over a polluting factory
Many remedies to resolving externalities involve "internalizing the externality." Which of the following best approximates that goal? punching people who smell nice placing a large dome over a polluting factory buying yourself flowers to counteract the bad smell from a neighboring pig farm giving candy to disruptive children
above
In the presence of external costs, the social cost curve lies ______ the supply curve. below sometimes above and sometimes below with above
12; $900 million
It takes approximately _______ years and _______ to bring a new drug to the market. 6; $20 billion 2; $100,000 4; $5 million 12; $900 million
Jill; Jack
Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. According to this scenario, _____ has a comparative advantage in decorating ice-cream cakes and _____ has a comparative advantage in decorating wedding cakes. Jill; Jill Jack; Jack Jill; Jack Jack; Jill
Trade-offs: Gaining some enjoyment is worth giving up some safety.
Manuel insists he places an infinite value on his life. Stefan is suspicious of this claim and points out to Manuel that he sometimes eats ice cream when broccoli would be much better for him. What Big Idea is Stefan using? Thinking on the Margin: "Infinite value" is too much to be on the margin. Trade-offs: Gaining some enjoyment is worth giving up some safety. Incentives: No one is paying Manuel to be healthy. The Power of Trade: Manuel could not make his own ice cream, though he could grow his own broccoli; Manuel must be trading for ice cream.
Incentives
Many companies pay their sales employees based on commissions—the more they sell, the more they get paid. This practice highlights the role of: sunk costs. incentives. marginal thinking. trade-offs.
sometimes cause prices to rise and sometimes cause prices to fall.
Speculators sometimes cause prices to rise and sometimes cause prices to fall. generally cause prices to fall. rarely influence prices. generally cause prices to rise.
Martha has an absolute advantage in ironing.
Martha Stewart can iron 20 shirts per hour. Her housekeeper can iron 12 shirts per hour. From this information alone, we can infer that: the housekeeper has a comparative advantage in ironing. Martha has a comparative advantage in ironing. the housekeeper has an absolute advantage in ironing. Martha has an absolute advantage in ironing.
There are few new mobile home foundations constructed.
Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which of the following is a plausible unintended consequence of these laws? There are few new buyers of mobile homes. There are few new mobile home foundations constructed. The price of mobile homes is artificially low. The price of transporting mobile homes is artificially high.
Other factors matter besides safety, such as comfort, cost, and fuel economy.
Most people do not buy the safest car they can find. Why not? Other things equal, people prefer cars that are less safe. Consumers are unaware of the risks of different cars and car companies trick people into buying the unsafe cars. The statement is false. People do buy the safest car they can find. Other factors matter besides safety, such as comfort, cost, and fuel economy.
long run than in the short run because long-run supply is more elastic.
New housing takes some time to build, so rent control creates larger shortages in the short run than in the long run because long-run supply is more elastic. long run than in the short run because long-run supply is more elastic. long run than in the short run because short-run supply is more elastic. short run than in the long run because short-run supply is more elastic.
all those man hours would have been spent working if not for the doodle.
On June 13, 2011, writer Sebastian Anthony at Extreme Tech wrote, "During the two days that the Les Paul [Google] doodle was online, those 740 million visitors spent 26 seconds more on the Google home page than normal. That's a total of almost 10.7 million man hours spent playing with the Les Paul Google Doodle. Assuming the average Google user earns $25/hour, the doodle cost companies around the world $268 million in lost productivity." Mr. Anthony's mistake is ignoring opportunity costs. He is doing this by assuming all those man hours would have been spent working if not for the doodle. labor has no incentive to work. all the Google visitors are at work. that labor is not making a marginal decision.
0.7; inelastic
On October 1, 2009, the Nintendo Wii's Japanese price dropped from ¥25,000 to ¥20,000. In the three months after the price drop, Japanese sales of the Wii were approximately 1,040,000. Twelve months earlier, over the same interval at the high price, sales totaled 890,000. Using the midpoint method, what is the absolute value of the price elasticity of demand of a Wii console? Is it an elastic or inelastic good? 1.43; elastic 0.7; inelastic 1.43; inelastic 0.7; elastic
internalize some of its costs
On the Price Is Right, Bob Barker (and now Drew Carey) encourages people to "Help control the pet population. Have your pets spayed or neutered." An overly large pet population leads to many stray animals that are not only depressing but are also prone to spread disease. Concerning pet ownership, Barker and Carey are attempting to do what? employ Pigouvian taxes internalize some of its benefits use the Coase Theorem internalize some of its costs
True
Speculators often raise prices today, but lower prices in the future. True False
Saved the lives of hundreds of convicts
Paying the captains of prisoner transport ships for each convict who arrived in Australia instead of for each convict who boarded the ship: shows that people care more about morality than about their self-interest. made no difference. increased volume of slave trafficking saved the lives of hundreds of convicts
False
Poor countries are at a distinct disadvantage when it comes to economic production; they get outcompeted in everything since they do not have a comparative advantage in anything. False True
are speculative markets designed so that prices can be interpreted as probabilities and used to make predictions.
Prediction markets incentivize random guessing about the future. are widely subsidized by the government to improve information-gathering. are not very reliable sources of information. are speculative markets designed so that prices can be interpreted as probabilities and used to make predictions.
is the amount that buyers are willing and able to buy at a particular price.
Quantity demanded: shows how much sellers are willing and able to sell at different prices. is the amount that sellers are willing and able to sell at a particular price. shows how much buyers are willing and able to buy at different prices. is the amount that buyers are willing and able to buy at a particular price.
meant the government prevented the entry of new competitors to maintain high ticket prices.
Regulation of airline fares under the Civil Aeronautics Board lead to greater innovation in the airline industry at a cost of higher ticket prices. made it possible for lower-income Americans to afford air travel for the first time. created incentives for optimal resource allocation. meant the government prevented the entry of new competitors to maintain high ticket prices.
markets coordinate the specialization and trade necessary for the flower industry to function.
Roses grown in Kenya travel to Amsterdam and ultimately to your local flower shop because: the World Rose Commission coordinates the different elements of the rose industry. of the trade agreement between the government of Kenya and Amsterdam. markets coordinate the specialization and trade necessary for the flower industry to function. customers are willing to pay more for roses that pass through Amsterdam.
help stabilize prices over time.
Speculators cause prices to rise but never to fall. help stabilize prices over time. profit by setting market prices at monopoly levels. profit at the expense of consumers.
-1/2.
Suppose that along a given demand curve, price goes up by 10 percent, decreasing quantity demanded by 5 percent. The price elasticity of demand is impossible to calculate without specific prices and quantities. 50. -1/2. -2.
Studios would know in advance whether the prediction market was accurate.
The Hollywood Stock Exchange allows users to bet on the success of movies already produced. Imagine that a new exchange develops that allows users to bet on the success of movies not yet produced. A contract would pay some fraction of the film's future gross earnings if the film actually gets produced, and users would have their money returned to them if the film were not made. Which of the following is NOT true? Studios could make better decisions about budgeting and marketing. Studios would know in advance whether the prediction market was accurate. Studios have an incentive to set up such a market. Studios could use such information to make films that are more popular and profitable.
have an excellent track record in predicting political events.
The Iowa Electronic Markets are where farmers buy and sell futures contracts. create biased predictions because it does not use price signals. predicted that Obama would lose the election for president in 2008. have an excellent track record in predicting political events.
tariff.
The U.S. price of sugar is higher than the world price of sugar due primarily to a quota. local content requirement. tariff. subsidy.
Nixon
The United States attempted to centrally plan the allocation of oil under the ______ Administration. Nixon Reagan Clinton Carter
Zimbabwe experienced inflation at a rate of billions of percent per month.
The Zimbabwean government printed money as fast as it could for years. As a result: Zimbabwe experienced inflation at a rate of billions of percent per month. prices fell rapidly in Zimbabwe. the Zimbabwean economy grew rapidly. Zimbabwe experienced mild inflation.
the higher her opportunity cost of ironing her own shirts
The better Martha Stewart is at running her business: the more it makes sense for her to spend her time away from her business. the lower her opportunity cost of ironing her own shirts. the higher her opportunity cost of ironing her own shirts. the more it makes sense for her to iron her own shirts, because she will have more time.
Walmart.
The biggest retail contributor to the 1990s productivity boom was Walgreen's. Kroger. Walmart. Target.
more elastic
The demand for most goods tends to become ______ over time. downward sloping more vertical less elastic more elastic
how much less of a good or service consumers will buy when the price increases.
The elasticity of demand measures a supplier's estimate of market demand. how consumers substitute across goods when the price of one increases. whether consumers will buy more or less as the price increases. how much less of a good or service consumers will buy when the price increases.
consumers' willingness to pay equals producers' willingness to sell.
The equilibrium quantity is the quantity at which: consumers' willingness to pay equals producers' willingness to sell. suppliers' production is maximized. gains from trade are minimized. buyers have no unsatisfied wants.
how easy it is to substitute the good for another.
The fundamental determinant of the elasticity of demand for a good is the opportunity cost of producing the good. the value that consumers place on one more unit of the good. the number of consumers in the market. how easy it is to substitute the good for another.
These policies at least partially offset each other, because a subsidy is a negative tax.
The government subsidizes driving by building roadways, but it also taxes driving though gasoline taxes. Which of the following is TRUE? These policies at least partially offset each other, because a subsidy is a negative tax. Road building expenditures must be less than gasoline tax revenues. These policies compound each other because a subsidy is the same thing as a tax. Deadweight losses from road subsidies exceed deadweight losses from gasoline taxes.
some industries deserve protection because they provide positive spillover effects to the rest of the economy.
The key industries argument for trade restrictions relies on the notion that economies of scale are easier to achieve in exporting industries. products with inelastic supply are the major source for job creation. some industries deserve protection because they provide positive spillover effects to the rest of the economy. war may disrupt trade flows.
more elastic demand
The more quantity demanded responds to a change in the price of that good the _____ is for that good. more elastic supply less elastic demand less elastic supply more elastic demand
is higher for people who are employed than for the unemployed
The opportunity cost of committing a crime and spending 5 years in jail: is the same for everyone. equals the fines and legal fees. is zero because the costs of jail are paid for by the government. is higher for people who are employed than for the unemployed.
the tax whether it is imposed on buyers or on sellers.
The price paid by buyers minus the price paid by sellers equals the tax only if it is imposed on buyers. the tax only if it is imposed on sellers. the tax whether it is imposed on buyers or on sellers. the subsidy whether it is given to buyers or to sellers.
her opportunity cost of ironing exceeds the person's wages providing the ironing service.
The reason why Martha Stewart does not iron her own clothes is that: she has a comparative advantage in ironing. she does not have an absolute advantage in ironing. she has never learned how to iron. her opportunity cost of ironing exceeds the person's wages providing the ironing service.
each of these developments.
The recent pace of globalization has been increased through: increased speed of communication. the integration of world markets. declining transportation costs. each of these developments.
a country's opportunity cost of production.
The slope of the production possibilities frontier at a given point indicates ______. a country's trade balance a country's total gains from trade. the preferences of a country. a country's opportunity cost of production.
the cost to everyone.
The social cost is the cost to everyone. a cost paid by people other than the consumer or the producer trading in the market. the cost of reaching an agreement. a cost paid by the consumer or the producer.
both the cost of the vehicle's pollution and its operation (gas, etc).
The social cost of driving an SUV is equal to both the cost of the vehicle's pollution and its operation (gas, etc). only the cost of the pollution emitted by the vehicle. both the cost of producing and driving the vehicle. the cost of producing the vehicle.
less elastic the demand
The steeper a linear demand curve is the less elastic the demand. more elastic the demand. higher the price of the good. more normal the good.
production can be expanded without causing a big increase in the price of its inputs.
The supply of a good tends to be more elastic if the good is considered a necessity good. production can be expanded without causing a big increase in the price of its inputs. an increase in production has only a minimal impact on demand for the good. a change in the price of the good causes only a small change in the quantity supplied.
inelastic.
The supply of ancient Egyptian papyrus manuscripts is probably hyperelastic. inelastic. unit elastic. elastic.
demand curve at the quantity level corresponding to the unit.
The value of a unit of a good is given by the height of the demand curve at the quantity level corresponding to the unit. demand curve at equilibrium. supply curve at equilibrium. supply curve at the quantity level corresponding to the unit.
below the equilibrium price.
The yearly shortage of Super Bowl tickets implies that the price of Super Bowl tickets is: above the equilibrium price. not set by supply and demand, but instead by the NFL. set at the equilibrium price since they always sell out. below the equilibrium price.
$3,612.50
There are 100 consumers, each of whom values a concert ticket at a unique whole number dollar amount between $1 and $100. One customer is willing to pay $1, a second is willing to pay $2, a third is willing to pay $3, and so on. An unlimited number of concert tickets are on sale for $15 each. What is the total consumer surplus in this market? $3,612.50 $4,887.50 $4,250.00 $5,000.00
One person can have an absolute advantage in both goods but not a comparative advantage in both goods.
Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two goods? One person can have an absolute advantage in both goods but not a comparative advantage in both goods. One person can have neither an absolute nor a comparative advantage in either good. Both persons can always have both an absolute and comparative advantage in both goods. One person can have a comparative advantage in both goods but not an absolute advantage in both goods.
fall.
Under a binding price ceiling, we expect the quality of a good to rise. change in an indeterminate direction. fall. remain the same.
a lot of; a lot of
Wealthy countries tend to have ______ physical capital per worker and _______ human capital per worker. a lot of; a lot of little; a lot of a lot of; little no; a lot of
With greater use of antibiotics bacteria become increasingly resistant to them, increasing the likelihood of people dying from drug-resistant bacteria.
What negative externality does antibiotic use create? When drug companies increase the price of antibiotics, some people can no longer afford to buy antibiotics, putting them at increased risk of death. Because drug companies use very few workers in their production process, there is a larger than necessary demand for unemployment insurance and other social programs. The taxes on companies that produce antibiotics are passed on to consumers in the form of higher prices. With greater use of antibiotics bacteria become increasingly resistant to them, increasing the likelihood of people dying from drug-resistant bacteria.
buyers compete with other buyers, raising prices, and sellers compete with sellers, lowering prices.
When a market is competitive: everybody competes with everybody else. buyers compete with sellers to try to get lower prices. buyers compete with sellers and sellers compete with one another, but buyers do not compete with one another. buyers compete with other buyers, raising prices, and sellers compete with sellers, lowering prices.
demanders cannot signal their needs to suppliers.
When a price ceiling is in effect suppliers get too strong of a signal from demanders about their needs. demanders cannot signal their needs to suppliers. all of demanders' needs are met at the lower price, so there is no need to signal anything to suppliers. demanders have no incentive to signal their needs to suppliers.
producers bear the majority of the tax burden.
When demand is more elastic than supply, consumers bear all of the tax burden. producers bear the majority of the tax burden. consumers bear the majority of the tax burden. producers and consumers bear an equal amount of the tax burden.
Governments may improve the situation by changing incentives.
When markets don't align self-interest with social interest: individual benefits will exceed societal benefits. markets will still manage to reach an efficient outcome. governments may improve the situation by changing incentives. societal costs will always exceed individual benefits.
must rise.
When people spend more money without an increase in the supply of goods, prices: may rise or fall. must stay the same. must fall. must rise.
are not necessarily supplied by their lowest-cost producer.
When price floors are in effect goods and services do not necessarily flow to their highest-valued use. are not necessarily supplied by their lowest-cost producer. are neither necessarily supplied by their lowest-cost producer nor do they flow to their highest-valued use. are still allocated efficiently.
consumers will be more likely to use wood in its most valuable uses.
When the price of wood is high: the quantity demanded of wood will also rise. consumers will be more likely to use wood in its least valuable uses. consumers will be more likely to use wood in its most valuable uses. the quantity demanded of wood will be unaffected.
surplus.
When the quantity supplied of a good exceeds the quantity demanded, there is a(n): equilibrium. shortage. opportunity cost. surplus.
incomes fall during a recession, and oil is a normal good.
When there is a recession, the price of oil tends to fall because: the prices of substitutes for oil rise during recessions. the supply of oil increases during a recession, due to technological change. incomes fall during a recession, and oil is a normal good. people drive more during recessions while looking for employment.
speculation
Which of the following do price ceilings not cause? bribes search costs speculation waiting in line
price
Which of the following does NOT shift demand? expectations population price income
The skills of central planners go unappreciated.
Which of the following is NOT a difficulty of central planning? Distinguishing between low- and high-value uses of an item. Ensuring that planners have the incentive to move goods from low- to high-valued uses. Communicating orders to everyone involved in production. The skills of central planners go unappreciated.
political turnover
Which of the following is NOT a good institution? property rights political turnover honest government a dependable legal system
Your neighbors fix up their homes, which raises property values on the entire street.
Which of the following is an example of an external benefit? Your neighbor's rooster wakes you up every morning before your alarm clock goes off, reducing the amount of sleep you get at night. You get a raise that increases your pay 20 percent. Your neighbors fix up their homes, which raises property values on the entire street. Researchers at Johnson & Johnson are working on a cure for cancer.
secondhand smoke
Which of the following is an example of an external cost? the cost you pay your plumber to install a new hot water heater increased gas prices for drivers of SUVs your high electric bill that results from leaving your lights on all night secondhand smoke
McDonald's hamburgers
Which of the following probably has the most elastic demand? gasoline toilet paper McDonald's hamburgers prescription medications
I and III only
Which of the following results from a tariff on imported goods? I. domestic production increases II. domestic consumption increases III. government revenues increase I and II only I and III only II and III only I, II, and III
Trade raises the price of goods for both trading partners.
Which of the following statements regarding trade is NOT true? Trade raises the price of goods for both trading partners. Trade makes people better off when preferences differ. Trade increases productivity through specialization and production according to comparative advantage. Trade increases productivity through specialization and the division of knowledge.
decreases in product quality
Which of the following would NOT happen as the result of a price floor? misallocation of resources decreases in product quality lost gains from trade a surplus of the good
Buyers and sellers want to trade, but the threat of fines or jail time prevents them from doing so.
Which of these statements explains why price ceilings result in lost gains from trade? Buyers and sellers want to trade, but the threat of fines or jail time prevents them from doing so. Buyers want to trade, but sellers are indifferent at the lower prices. Neither buyers nor sellers want to trade subject to a price ceiling resulting in lost gains from trade. Sellers want to trade, but buyers prefer the lower prices.
international producers and domestic consumers
Who does protectionism hurt? domestic consumers only international producers and domestic consumers domestic producers only international producers only
decreases.
With a tax on producers, supply shifts in an indeterminate direction. remains in the same location. decreases. increases.
is more elastic than
World supply of a good ______ domestic supply. has indeterminate elasticity compared with is less elastic than is equally elastic to is more elastic than
The efficient equilibrium is to plant the garden, but you would not do so since your private costs exceed your private benefits.
You are considering planting a garden of beautiful flowers in your front yard. It would cost you $45 in time and materials to plant it. You would get $40 worth of benefits from the garden and your neighbor, who walks by your front yard every day, would get $10 worth of benefits from it. Which of the following is TRUE? Your private benefits exceed your private costs, so you would plant the garden. The efficient equilibrium is to plant the garden, but you would not do so since your private costs exceed your private benefits. The efficient equilibrium is to not plant the garden, but you would do so anyway since the social benefits exceed your private costs. The external benefits are not significant enough to affect the efficiency of this equilibrium.
Zoey considers Precious Moments figurines to be a normal good.
Zoey receives a big raise at work and decides to buy additional Precious Moments figurines. Which of the following statements is TRUE? Zoey considers Precious Moments figurines to be an inferior good. Zoey's demand for Precious Moments figurines decreased. Zoey's demand for Precious Moments figurines increased because they are relatively less expensive. Zoey considers Precious Moments figurines to be a normal good.
